Cap Rate Calculator
Calculate cap rate (NOI / Property Value) for an investment property from gross rents, vacancy, expenses, and price.
Typical market rate is 4-10%.
The capitalization rate (cap rate) is the most widely used metric for evaluating income-producing real estate. It measures the annual return a property generates relative to its current market value, independent of financing — allowing fair comparison between properties regardless of how they’re purchased.
Formula: Cap Rate = Net Operating Income (NOI) ÷ Current Property Value × 100 NOI = Gross Rental Income − Operating Expenses Property Value = NOI ÷ Cap Rate
What each variable means:
- Net Operating Income (NOI): annual income after operating expenses but before mortgage payments, income taxes, and depreciation.
- Operating Expenses: property taxes, insurance, property management, maintenance/repairs, vacancy allowance, utilities paid by owner.
- Cap Rate: expressed as a percentage; higher cap rate = higher return but often higher risk.
What is NOT included in NOI: Mortgage principal, mortgage interest, income tax, capital expenditures (roof replacement, HVAC), and depreciation are excluded. NOI is a pre-financing metric.
Cap rate benchmarks by market type:
| Market Type | Typical Cap Rate |
|---|---|
| Top-tier urban (NYC, SF) | 3–4% |
| Major metro suburban | 4–6% |
| Mid-sized cities | 5–8% |
| Small towns / rural | 7–12% |
Worked example: Single-family rental home. Purchase price: $280,000. Annual gross rent: $24,000 ($2,000/month) Vacancy (8%): −$1,920 Property tax: −$3,200 | Insurance: −$1,100 | Management (8%): −$1,920 | Maintenance: −$1,500
NOI = $24,000 − $1,920 − $3,200 − $1,100 − $1,920 − $1,500 = $14,360 Cap Rate = $14,360 ÷ $280,000 × 100 = 5.13%
Using cap rate to value a property: If comparable properties in the area sell at a 6% cap rate, this property’s fair value = $14,360 ÷ 0.06 = $239,333 — suggesting the $280,000 asking price is above market.
Cap rate vs. cash-on-cash return: Cap rate ignores financing. Cash-on-cash return measures the return on actual cash invested (down payment + closing costs) after debt service — usually more relevant to leveraged investors.
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This calculator runs entirely in your browser, so the numbers you enter stay on your device. The math behind it is written by hand and tested against worked examples and standard references before the page goes live.
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